Capital and Trusts

Hello folks

My client is terminally ill and gave several thousand pounds to his sister, asking her to pay for this funeral with this money - his illness is expected to reduce his capacity to manage his affairs in the future. The capital sum took client below the £16k limit so is of importance to his benefit entitlement. There was no formal agreement between the client and his sister about the money - the money was transferred to her account and there was a discussion in which he expressed his wishes, nothing more. I’m aware of the possible deprivation of capital arguments - my concern here is about the status of the money held by his sister.

I would argue that the capital is being held in trust by his sister (the trustee) for the benefit of the client (the beneficiary). There isn’t a formal agreement but a trust can exist without one (see R(SB)1/85). If I’m right and this is a trust, the question is then whether the trust is a discretionary or a non-discretionary trust. If it’s the former, and the client cannot insist on payment from the trust, then it shouldn’t count as the client’s capital for benefit purposes (see Gartside v Inland Revenue Commissioners). If it’s the latter, then it will count as his capital as he can realise the value of the asset held in trust at any time if he so wishes.

I am naturally hoping that the money is classed as being held in a discretionary trust, but I’d appreciate people’s thoughts on this matter.

Thank you

Jol

I would be drawn more towards a Quistclose trust. Money was given to the sister for the express purpose of paying for a funeral. The money is still his unless it is spent for the intended purpose

Hi Brian

Thanks for the reply. My understanding of a Quistclose Trust is that it relates to money that is lent by a creditor to a debtor. So, for example, if I lend someone money for the specific purpose of repairing their roof, and they spend it on a car, the money is treated as being held in a trust of which I am the beneficiary. In my client’s case, there was no intention to create a creditor/debtor relationship so I would argue that the Quistclose principle does not apply. The money was simply transferred to the sister for a specific purpose - it was not loaned, as a loan implies an intention of repayment which never existed. Unless of course paying for the client’s funeral could be considered repayment of a loan.

I may of course be completely wrong on all of this - the legal status of trusts is not exactly my forte.

Thanks again

Jol

You’re right on the Quistclose Trust thing.

If we were looking at this from the other angle - i.e. the money had taken the sister over her capital limit and was affecting her benefits, could she argue the money was not hers and that she held it on trust for her brother (i.e. a resulting trust)? I think she probably could. And if that were the case, the funds are not hers but his…...

Would the sister return the money without question if asked? If so, then not a discretionary trust…..

Another thought - how old is your client? If above PC age, the value of any funeral plan contract is ignored indefinitely for PC and HB. If you take a look at the definition of ‘funeral plan contract’ in para. 11 to Schedule 5 of the PC Regs, it’s loose enough to cover the scenario you’ve outlined. The definition for HB is the same.

Unfortunately, there in no parallel provision in IS/JSA/ESA - though there is for UC.

Should add for clarity that the HB provision is for claimants over PC age only….

Hi

Thanks for the replies. The client unfortunately can’t benefit from the more generous provisions for people of pension credit age, but thanks for pointing them out. With regard to the discretionary/non-discretionary nature of the trust/non-trust(!):

I don’t know the sister’s intentions, but if we assume that she would return the money if asked, is the question of whether she was legally obliged to return the money if asked of relevance? In other words, is the question not whether she could legally be compelled to return the money if asked, rather than whether she would do so in practice? I don’t know, I’m just thinking out loud!

From a legal point of view, given that there are no formal agreements at all obliging her to do this, it is possible that she may be under no obligation to return the money if asked - but again, I’m no expert on trusts so I simply don’t know. But although the client could demand repayment, and the sister may well oblige, if he could not legally compel repayment would this make it a discretionary trust?

Cheers

Jol

Might it not be simpler for the client to consider purchasing a prepaid funeral plan?

Thanks for the reply.

It’s all in the past and relates to an overpayment. Client was on IS, came into about £19k, immediately gave £5k to sister for funeral, client continued to receive IS for 6 months. No declaration of any capital to DWP. DWP created an overpayment on the basis that client had over £16k during the entire overpayment period. We’re trying to get it reduced by showing that she had capital below the £16k limit almost immediately and should therefore have only been subject to a tariff income, but the success of this depends on how the £5k passed to the sister is treated - ie, whether it is the client’s capital or whether it is disregarded.

Cheers

Jol

Paul - would this then not simply count as his capital (see above)?

As for the trust issue…...

Thinking about a hypothetical court case in which the client tried to get the money back, sister said ‘no, it’s for your funeral - you gave it to me with the express purpose of paying for your funeral after you die.’ - the court would, I imagine, decide that on the evidence. And if there were witnesses that confirmed his purpose in giving her the money was to pay for the funeral, that would confirm the trust - and its non-discretionary nature. i.e. the court would confirm the trust.

That said, I’m no expert on trusts in general (only in what one might need to show a trust exists where there’s nothing in writing and how a trust might affect benefit entitlement) - even assuming a trust exists, there might be some provision where, in the current circumstances, the client could legally change his mind and get the money back. I don’t know - Claire Hodgson who posts on here might well know though.

AlexJ - 01 August 2016 01:57 PM

DWP created an overpayment on the basis that client had over £16k during the entire overpayment period. We’re trying to get it reduced by showing that she had capital below the £16k limit almost immediately and should therefore have only been subject to a tariff income, but the success of this depends on how the £5k passed to the sister is treated - ie, whether it is the client’s capital or whether it is disregarded.

Hold on. Even if it’s not a trust he’s given the money to her - which means he no longer has capital above £16k. Which means the DWP has to show he’s caught by the notional capital rules - i.e. that he knew the capital limits and disposed of the money with the purpose of securing benefit entitlement…..

Unless the DWP is saying it accepts the existence of the trust but is saying it isn’t discretionary? (not discretionary in the limited sense of the DWP’s argument being that he is able to apply for funds from that trust - and with an absolute right to receive them on application).

past caring - 01 August 2016 02:18 PM

Paul - would this then not simply count as his capital (see above)

From your post - If above PC age, the value of any funeral plan contract is ignored indefinitely for PC and HB. If you take a look at the definition of ‘funeral plan contract’ in para. 11 to Schedule 5 of the PC Regs, it’s loose enough to cover the scenario you’ve outlined. The definition for HB is the same.

So no it wouldn’t unless I didn’t understand what you’re getting at? Anyway, its all moot in context of this query as noted due to historical overpayment. And i think your advice is sound generally on this point (although I’m no expert on trusts whatsoever).

Sorry Paul - we were at cross purposes. O/P was originally silent on whether client over PC age - so I asked. Then O/P confirmed he’s under PC age…...

I’m with Past Caring- it sounds like a deprivation decision to me.

Basically, what I’m trying to show is that either:

(a) the capital isn’t his at all because he gave it away and there was no deprivation in doing so (I didn’t raise this as it wasn’t the aspect of the case I needed advice on) or;
(b) if it is his capital, it’s being held in a discretionary trust, in which case it isn’t counted as his capital

But the DWP appear to be continuing to treat the capital as being his, whether it be notional or actual. It isn’t clear at this point (not had the bundle yet) whether this is because they believe there has been deprivation (and the capital is notional), or whether they are treating the capital as being his money which is held in a trust which is non-discretionary (ie. from which he can demand payment at any time). I’m sorry if this hasn’t been clear previously.

Cheers

Jol

AlexJ - 01 August 2016 11:59 AM

Hi Brian

Thanks for the reply. My understanding of a Quistclose Trust is that it relates to money that is lent by a creditor to a debtor. So, for example, if I lend someone money for the specific purpose of repairing their roof, and they spend it on a car, the money is treated as being held in a trust of which I am the beneficiary. In my client’s case, there was no intention to create a creditor/debtor relationship so I would argue that the Quistclose principle does not apply. The money was simply transferred to the sister for a specific purpose - it was not loaned, as a loan implies an intention of repayment which never existed. Unless of course paying for the client’s funeral could be considered repayment of a loan.

I may of course be completely wrong on all of this - the legal status of trusts is not exactly my forte.

Thanks again

Jol

Your interpretation is too narrow a reading of the rule and the debtor/creditor issue is not fundamental to the nature of the trust; it is more about proprietary interests and equity. Also to take in other posts on the issue, a Quistclose trust is a form of resulting trust.

A Quistclose trust should be considered anywhere where a party transfers property to another for a specific purpose. The situation commonly arises where one party lends money to another for a specific purpose on the understanding that the other only uses the money for that specific purpose. If it becomes impossible to fulfill the purpose or if the money has not been spent, then the lender retains a proprietary interest in the money. In effect, it allows the lender to convert what would otherwise be a debt, into a trust should anything befall the other party. The beneficial interest in the money, always remains with lender

What you have here is ‘A’ passing money to ‘B’ which leads to two possible scenarios.

This is either a perfected gift which means the cash belongs to ‘B’, and ‘A’ is subject to deprivation rules; or, it is a resulting or Quistclose trust which still means that the beneficial interest lies with ‘A’ because the cash has not been spent on the intended purpose.

If you think about it logically, there can never be any form of discretionary trust here that will not fall foul of rules, notwithstanding the fact that there is no trust instrument to support a discretionary trust. A discretionary trust provides that the trustee will release funds for any purpose they consider fit and at their discretion. There is no trustee discretion if the funds are provided specifically for a funeral. Also you cannot give away legal ownership of several thousand pounds of your own money whilst retaining a beneficial interest in that money in order to obtain benefits. Any trust is born out of equity, and there is an age old maxim of equity which says. ‘he comes into equity must come with clean hands’, which basically means you cannot argue an equitable doctrine in order to fiddle the system.

In my honest opinion I’m with past caring and 1964; the DWP are correct, and the capital will be treated as belonging to your client.